SOURCE: Epicor Software Corporation

Epicor Software Corporation

February 11, 2010 16:11 ET

Epicor® Reports 2009 Fourth Quarter Results

License Revenue Grows 88% Over Q3 '09, Helping Drive Q4 '09 Free Cash Flow in Excess of $17 Million

IRVINE, CA--(Marketwire - February 11, 2010) - Epicor Software Corporation (NASDAQ: EPIC), a leading provider of enterprise business software solutions for the midmarket and divisions of Global 1000 companies, today reported financial results for its fourth quarter ended December 31, 2009. All results should be considered preliminary pending the Company's filing of its annual report on Form 10-K.

Total revenue for the 2009 fourth quarter was $111.9 million, with GAAP net income of $6.7 million, or $0.11 per diluted share. This compares to 2008 fourth quarter revenue of $121.9 million, and GAAP net income of $1.5 million, or $0.03 per diluted share.

Non-GAAP(1) net income for the 2009 fourth quarter was $11.1 million, or $0.19 per diluted share, compared to non-GAAP net income of $13.6 million, or $0.23 per diluted share in the 2008 fourth quarter.

2009 Fourth Quarter Revenue by Segment: 2009 fourth quarter license revenue was $25.8 million, up 3% year-over-year when compared to 2008 fourth quarter license revenue of $25.2 million, and growing sequentially by 88% over 2009 third quarter license revenue of $13.7 million. 2009 fourth quarter maintenance revenue also grew year-over-year by 3% to $48.6 million when compared to 2008 fourth quarter maintenance revenue of $47.3 million. Consulting revenue was $33.2 million in the 2009 fourth quarter, down from 2008 fourth quarter consulting revenue of $38.1 million. Hardware and other revenue for the 2009 fourth quarter was $4.4 million, down year-over-year when compared to hardware and other revenue of $11.4 million in the prior year's fourth quarter.

Epicor Chairman, President and CEO George Klaus commented, "With software license revenues increasing nearly 90 percent over the third quarter and exceeding our year earlier comparable for the first time in 2009, Epicor's fourth quarter was a very strong finish to a respectable year. Epicor 9 is making a difference and is enabling Epicor to increase market share across all of the industries and geographies we address. We are confident we have superior solutions for the markets we serve, and we have positioned Epicor to close on the ever growing list of opportunities we are creating. All revenue lines grew over the 2009 third quarter, with the exception of hardware, and total gross margin hit a two-year high of 51 percent, helping drive fourth quarter adjusted EBITDA margin of 17.8 percent, at least three percentage points higher than any other quarter this year. We generated more than $17 million in free cash flow(2) -- a total of approximately $47 million for the year -- which grew our cash balance to approximately $107 million.

"We executed well throughout 2009 against our guidance," Klaus said, "coming in at or above guidance on all key metrics. We are encouraged by economic data points that may drive more IT spending by our prospective customers, as well as initial signs of a return to growth in many of the industries we address. These positive metrics are being reflected in our pipelines, which continue to strengthen over last year. We currently expect to experience modest growth across all of our lines of business in 2010 -- excluding hardware -- and we expect to drive an even higher rate of bottom line improvement. We will continue to take a prudently conservative approach to our financial expectations and we plan to continue to build on our track record of executing to our guidance."

Business Outlook: For its 2010 first quarter, the Company said it currently expects all revenue lines to be up from the first quarter of 2009, with the exception of hardware. 2010 first quarter total revenue is expected to be $98 to $100 million, with non-GAAP earnings per diluted share(3) for the 2010 first quarter expected to be $0.10 to $0.11.

Balance Sheet Summary: The Company's balance sheet at December 31, 2009, included cash and cash equivalents of $106.9 million. The balance sheet benefited from free cash flow of $17.5 million during the 2009 fourth quarter, which helped support $5 million in discretionary pay downs on the Company's credit facility during the quarter. The Company's total debt balance as of December 31, 2009, consists primarily of the $230 million obligation to holders of the Company's 2.375% senior convertible notes (less the debt discount described below of $42.1 million) and $67.5 million of borrowings under the Company's credit facility, currently priced at LIBOR plus 4.0%.

At the end of the 2009 fourth quarter, net accounts receivable was approximately $90.0 million. The Company had solid cash collections of approximately $116 million during the 2009 fourth quarter. Days sales outstanding (DSOs) in the 2009 fourth quarter were flat at 74, compared to 74 in the third quarter of 2009. Deferred revenue at the end of the 2009 fourth quarter was $96.4 million.

The Company also said that W. Douglas Hajjar, 62, has joined the Company's Board of Directors, where he formerly served from 1996 to 1999 as a director. His appointment expands Epicor's Board of Directors to eight members. Hajjar will begin serving immediately and will stand for election for a full one-year term at the Company's 2010 Annual Meeting of Shareholders later this year. Hajjar currently serves as Chairman of Blue Wave Wireless, a telecommunications infrastructure company. From 1997 to 2007, he served as Chairman of Wherify Wireless Inc., a leading developer of wireless location products and services, which he co-founded in 1997. From 2000 to 2007, he was Chairman of Maui Innovative Technologies, a company he co-founded to develop Top Secret weapon systems for the military. From 1991 to 1997, Hajjar was Chairman of Control Data Systems Inc. Previously, he served as vice-chairman of Cadence Design Systems Inc., and was chairman and chief executive officer of Valid Logic at the time of its acquisition by Cadence. He also held executive positions in operations and finance at Genrad and M/ACom. Hajjar earned his BSBA in accounting at Boston College and served as an Army Intelligence Officer in Vietnam.

"Doug brings more than 30 years of extensive knowledge and senior leadership experience in the technology industry and is an excellent complement to our already strong Board," said Klaus. "He is a welcome addition and we look forward to working with him."

Effective January 1, 2009, the Company adopted new accounting guidance related to the accounting for convertible debt instruments that may be settled in cash upon conversion, and retroactively applied this change to all periods presented herein. This standard requires the Company to change the previous accounting method for its $230 million convertible notes. Accordingly, the Company recorded a $61.8 million debt discount as Additional Paid in Capital, as of the notes' issuance date of May 15, 2007. At December 31, 2009, the debt discount was $42.1 million.

The Company is amortizing the debt discount through the date at which the Company can begin to redeem the notes, which is May 15, 2014. The Company recognized interest expense of $3.4 million and $3.3 million related to the convertible debt for the three months ended December 31, 2009 and 2008, respectively, of which $1.4 million is a cash expense in each period.

Earnings Conference Call

The Company will hold an investor and analyst conference call today at 5:00 p.m. Eastern Time/2:00 p.m. Pacific Time.

When:     Thursday, February 11, 2010
Time:     2:00 p.m. PT
Dial in:  +1 (877) 852-6573 or outside the U.S. +1 (719) 325-4878
Conf ID:  Epicor 2009 Fourth Quarter Earnings Call
Webcast:  http://ir.epicor.com

On the call, Chairman, President and CEO George Klaus and Executive Vice President and CFO Michael Pietrini will review 2009 fourth quarter earnings. Investors and analysts are invited to participate on the call. Please dial in approximately ten minutes prior to start time. A live audio-only webcast of the call will be made available to the public on the Company's Web site at http://ir.epicor.com and will be archived for thirty days following the call on the Company's Web site.

(1) Please see the reconciliations to GAAP measures provided at the end of this press release.

(2) Free cash flow is a non-GAAP measure. The Company calculates free cash flow as adjusted EBITDA, plus stock-based compensation, less capital expenditures, cash paid for income taxes and net interest. Please refer to the table below for a complete reconciliation.

(3) The Company's 2010 first quarter non-GAAP earnings per diluted share guidance excludes current expectations for first quarter amortization of intangible assets of approximately $7.0 million, first quarter stock-based compensation expense of approximately $4.0 million, approximately $2.1 million in non-cash interest expense for the first quarter related to amortization of debt discount and an expected charge of approximately $1.0 million related to the currency devaluation by the Venezuelan government. 2010 first quarter non-GAAP earnings per share expectations assume a weighted average share count of 59.5 million shares.

About Epicor Software Corporation

Epicor Software is a global leader delivering business software solutions to the manufacturing, distribution, retail, hospitality and services industries. With 20,000 customers in over 150 countries, Epicor provides integrated enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM) and enterprise retail software solutions that enable companies to drive increased efficiency and improve profitability. Founded in 1984, Epicor takes pride in more than 25 years of technology innovation delivering business solutions that provide the scalability and flexibility businesses need to build competitive advantage. Epicor provides a comprehensive range of services with a single point of accountability that promotes rapid return on investment and low total cost of ownership, whether operating business on a local, regional or global scale. The Company's worldwide headquarters are located in Irvine, California with offices and affiliates around the world. For more information, visit www.epicor.com.

Epicor is a registered trademark of Epicor Software Corporation. Other trademarks referenced are the property of their respective owners. The product and service offerings depicted in this document are produced by Epicor Software Corporation.

Forward-Looking Statements

This press release contains certain statements which constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding expected revenues (including growth rates), earnings and earnings per share (including on a non-GAAP basis), non-GAAP free cash flow, the Company's products, market share, business model, sales pipelines and opportunities, competitive advantage and other statements that are not historical fact. These forward-looking statements are based on currently available competitive, financial and economic data together with management's views and assumptions regarding future events and business performance as of the time the statements are made and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied in the forward-looking statements.

Such risks and uncertainties include, but are not limited to, changes in the demand for enterprise resource planning products, particularly in light of competitive offerings; the timely availability and market acceptance of new products and upgrades, including Epicor 9; the impact of competitive products and pricing; the discovery of undetected software errors; changes in the financial condition of Epicor's major commercial customers and Epicor's future ability to continue to develop and expand its product and service offerings to address emerging business demand and technological trends; and other factors discussed in Epicor's annual report on Form 10-K for the year ended December 31, 2008 and other reports Epicor files with the SEC. As a result of these factors the business or prospects expected by the Company as part of this announcement may not occur. Epicor undertakes no obligation to revise or update publicly any forward-looking statements.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. In evaluating the Company's performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP.

Non-GAAP Earnings Measure. The Company uses non-GAAP earnings measures, adjusted EBITDA, EBITDA margins and free cash flow in this press release. Management believes these non-GAAP measures help indicate the Company's baseline performance before gains, losses or charges that are considered by management to be outside on-going operating results. Accordingly, management uses these non-GAAP measures to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis for planning and forecasting future periods. Management believes these non-GAAP measures, when read in conjunction with the Company's GAAP financials, provides useful information to investors by offering:

--  the ability to make more meaningful period-to-period comparisons of
    the Company's on-going operating results;
--  the ability to better identify trends in the Company's underlying
    business and perform related trend analysis;
--  a better understanding of how management plans and measures the
    Company's underlying business; and,
--  an easier way to compare the Company's most recent results of
    operations against investor and analyst financial models.

The non-GAAP financial measures for 2008 and 2009 used by the Company are defined to include deferred revenues from NSB that were adjusted to fair value as required by purchase accounting in accordance with GAAP reporting, and to exclude amortization of intangible assets, stock-based compensation expense, amortization of long-term debt discount from the Company's May 2007 convertible note offering, the write-off of in-process research and development, the write-off of debt issuance fees, restructuring and other, which include costs associated with workforce reductions, and other charges. The non-GAAP financial measures for 2009 used by the Company are also defined to reflect income taxes at a 38% tax rate.

Management believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both the Company's newly acquired and long-held businesses. Management also believes that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies because of varying available valuation methodologies, subjective assumptions and the variety of award types which effect the calculations of stock-based compensation. Management believes it is appropriate to exclude costs associated with the in-process research and development charge, the write-off of debt issuance fees and the amortization of long-term debt discount from the Company's May 2007 convertible note offering, as well as restructuring and other charges, which included costs associated with the integration of NSB into Epicor and costs associated with workforce reductions, because these charges are not related to the Company's ongoing business operations and it allows for more accurate comparisons of our operating results to our peer companies. Finally, management believes that using a 38% tax rate is appropriate because it allows comparisons of our operating results that are more consistent with prior periods presented, as well as more accurate comparisons of our operating results to our peer companies.

General. These non-GAAP measures have limitations, however, because they do not include all items of income and expense that impact the Company's operations. Management compensates for these limitations by also considering the Company's GAAP results. The non-GAAP financial measures the Company uses are not prepared in accordance with, and should not be considered an alternative to, measurements required by GAAP, such as operating income, net income and income per share, and should not be considered measures of the Company's liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measures reported by other companies.


                        EPICOR SOFTWARE CORPORATION
            PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in thousands)
                                (Unaudited)


                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------
                                                              (As Adjusted)
ASSETS
Current assets:
  Cash and cash equivalents                     $    106,861  $     89,764
  Accounts receivable, net                            90,011        90,624
  Deferred income taxes                               11,572         8,627
  Inventory, net                                       1,819         5,068
  Prepaid expenses and other current assets           13,976        11,064
                                                ------------  ------------
Total current assets                                 224,239       205,147

Property and equipment, net                           28,511        31,987
Deferred income taxes                                 21,867        24,038
Intangible assets, net                                84,107       113,556
Goodwill                                             368,336       363,589
Other assets                                          10,990        14,061
                                                ------------  ------------
Total assets                                    $    738,050  $    752,378
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $     13,966  $     13,913
  Accrued expenses                                    46,754        45,177
  Current portion of long-term debt                      202        10,169
  Current portion of accrued restructuring
   costs                                               1,694         4,073
  Current portion of deferred revenue                 96,040        92,361
                                                ------------  ------------
Total current liabilities                            158,656       165,693
                                                ------------  ------------

Long-term debt, less current portion                 255,535       265,257
Accrued restructuring costs                            4,423         5,412
Deferred revenue                                         392           319
Deferred income taxes and other income taxes          15,172        18,801
Other long-term liabilities                            3,785           941
                                                ------------  ------------
Total long-term liabilities                          279,307       290,730
                                                ------------  ------------

Stockholders' equity:
  Common stock                                            63            61
  Additional paid-in capital                         422,460       414,149
  Less: treasury stock at cost                       (20,670)      (18,458)
  Accumulated other comprehensive loss                (4,825)       (4,094)
  Accumulated deficit                                (96,941)      (95,703)
                                                ------------  ------------
Total stockholders' equity                           300,087       295,955
                                                ------------  ------------
Total liabilities and stockholders' equity      $    738,050  $    752,378
                                                ============  ============




                        EPICOR SOFTWARE CORPORATION
        PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except per share amounts)
                                (Unaudited)


                                    Three Months Ended      Year Ended
                                        December 31,       December 31,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
                                                (As                 (As
                                              Adjusted)           Adjusted)
Revenues:
   License fees                     $ 25,785  $ 25,150  $ 70,235  $ 90,416
   Consulting                         33,165    38,110   128,413   152,153
   Maintenance                        48,569    47,316   190,943   192,308
   Hardware and other                  4,389    11,372    20,033    53,002
                                    --------  --------  --------  --------
Total revenues                       111,908   121,948   409,624   487,879
                                    --------  --------  --------  --------

Cost of revenues                      47,764    53,892   180,549   239,912
Amortization of intangible assets      7,100     8,383    30,772    32,896
                                    --------  --------  --------  --------
        Total cost of revenues        54,864    62,275   211,321   272,808
                                    --------  --------  --------  --------

Gross profit                          57,044    59,673   198,303   215,071
                                    --------  --------  --------  --------

Operating expenses:
   Sales and marketing                20,688    19,734    75,105    82,883
   Software development               12,525    11,648    49,207    52,533
   General and administrative         12,869    12,649    54,410    52,139
   Write off of in-process research
    and development                        -         -         -       200
   Restructuring and other                 -     4,377     2,210     9,143
                                    --------  --------  --------  --------
Total operating expenses              46,082    48,408   180,932   196,898
                                    --------  --------  --------  --------

Income from operations                10,962    11,265    17,371    18,173
Interest expense                      (5,013)   (5,625)  (22,363)  (22,522)
Interest and other income
 (expense), net                          570      (749)      411       303
                                    --------  --------  --------  --------

Income (loss) before income taxes      6,519     4,891    (4,581)   (4,046)
Provision (benefit) for income
 taxes                                  (195)    3,344    (3,343)     (595)
                                    --------  --------  --------  --------
Net income (loss)                   $  6,714  $  1,547  $ (1,238) $ (3,451)
                                    ========  ========  ========  ========


Net income (loss) per share:
       Basic                        $   0.12  $   0.03  $  (0.02) $  (0.06)
       Diluted                      $   0.11  $   0.03  $  (0.02) $  (0.06)

Weighted average common shares
 outstanding:
       Basic                          58,112    58,553    57,889    58,351
       Diluted                        59,344    59,082    57,889    58,351





                        EPICOR SOFTWARE CORPORATION
              PRELIMINARY NON-GAAP NET INCOME RECONCILIATION
                 (in thousands, except per share amounts)
                                (Unaudited)


                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------

Income (loss) before income taxes   $  6,519  $  4,891  $ (4,581) $ (4,046)

Add back:
   Amortization of intangible
    assets                             7,100     8,383    30,772    32,896
   Stock-based compensation expense    2,211       826     8,108     7,045
   Amortization of long-term debt
    discount                           2,031     1,889     7,907     7,356
   Restructuring and other                 -     4,377     2,210     9,143
   Debt issuance fees write off            -         -     2,571         -
   Deferred revenue fair value
    adjustment                             -     1,304       432     7,717
   In-process research and
    development                            -         -         -       200
   Other                                (380)        -       179     1,610
                                    --------  --------  --------  --------

Non-GAAP income before income taxes   17,481    21,670    47,598    61,921
Non-GAAP provision for income
 taxes (1)                            (6,426)   (8,115)  (17,350)  (22,621)
                                    --------  --------  --------  --------

Non-GAAP net income                 $ 11,055  $ 13,555  $ 30,248  $ 39,300
                                    ========  ========  ========  ========

Non-GAAP net income per diluted
 share                              $   0.19  $   0.23  $   0.52  $   0.67
                                    ========  ========  ========  ========

Weighted average common shares
 outstanding:
     Diluted                          59,344    59,082    58,618    58,984

(1) The Company utilizes a 38% tax rate for the calculation of the non-GAAP
provision for income taxes for comparison purposes with other periods.  The
non-GAAP effective income tax rates reflected above differ from 38% due to
certain non-deductible non-GAAP add backs.





                        EPICOR SOFTWARE CORPORATION
         PRELIMINARY NET INCOME TO ADJUSTED EBITDA RECONCILIATION
                          (dollars in thousands)
                                (Unaudited)


                                 Three Months Ended        Year Ended
                                    December 31,          December 31,
                                --------------------  --------------------
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------

Total revenues                  $ 111,908  $ 121,948  $ 409,624  $ 487,879
                                =========  =========  =========  =========

Net income (loss)               $   6,714  $   1,547  $  (1,238) $  (3,451)
  Provision (benefit) for
   income taxes                      (195)     3,344     (3,343)      (595)
  Interest expense                  5,013      5,625     22,363     22,522
  Amortization of intangible
   assets                           7,100      8,383     30,772     32,896
  Depreciation                      1,906      2,057      7,926      8,214
  Restructuring and other               -      4,377      2,210      9,143
  In-process research and
   development                          -          -          -        200
  Deferred revenue fair value
   adjustment                           -      1,304        432      7,717
  Interest and other (income)
   expense, net                      (570)       749       (411)      (303)
                                ---------  ---------  ---------  ---------
Adjusted EBITDA                 $  19,968  $  27,386  $  58,711  $  76,343
                                =========  =========  =========  =========

Adjusted EBITDA percent of
 total revenues                      17.8%      22.5%      14.3%      15.6%
                                =========  =========  =========  =========






                        EPICOR SOFTWARE CORPORATION
                PRELIMINARY FREE CASH FLOW RECONCILIATION
                              (in thousands)
                                (Unaudited)


                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------

Net income (loss)                   $  6,714  $  1,547  $ (1,238) $ (3,451)
  Provision (benefit) for income
   taxes                                (195)    3,344    (3,343)     (595)
  Interest expense                     5,013     5,625    22,363    22,522
  Amortization of intangible assets    7,100     8,383    30,772    32,896
  Depreciation                         1,906     2,057     7,926     8,214
  Restructuring and other                  -     4,377     2,210     9,143
  In-process research and
   development                             -         -         -       200
  Deferred revenue fair value
   adjustment                              -     1,304       432     7,717
  Interest and other (income)
   expense, net                         (570)      749      (411)     (303)
                                    --------  --------  --------  --------
Adjusted EBITDA                     $ 19,968  $ 27,386  $ 58,711  $ 76,343
                                    ========  ========  ========  ========

Adjusted EBITDA                     $ 19,968  $ 27,386  $ 58,711  $ 76,343
  Non-cash stock-based compensation    2,211       826     8,108     7,045
  Capital expenditures                (1,591)   (2,116)   (4,093)   (9,946)
  Cash paid for taxes                   (305)   (1,080)   (2,455)   (5,132)
  Net interest                        (2,766)   (3,360)  (13,574)  (11,655)
                                    --------  --------  --------  --------
Free cash flow                      $ 17,517  $ 21,656  $ 46,697  $ 56,655
                                    ========  ========  ========  ========


Contact Information

  • Contact:
    Damon Wright
    Vice President Investor Relations
    Epicor Software Corporation
    949/585-4509
    dswright@epicor.com